MUMBAI Real estate developers rallied on Friday as investors rushed in to buy beaten-down stocks with an expectation of an interest rate cut by the Reserve Bank of India in its third quarter review on Tuesday and several brokerages recommending their clients to buy companies which are cutting down debt.

In two trading sessions on Wednesday and Thursday investors hammered realty stocks after promoters of HDIL and one of its investors Citigroup sold shares in the market. BSE Realty index, comprising 10 stocks, rose 4.42% on Friday, against a percentage gain in the benchmark Sensex. HDIL surged 10.52% to close at Rs 82.50 after foreign brokerage Macquarie recommended 'Outperform' rating with a target price of Rs 168. The stock had plunged more than 38% in the previous three trading sessions.

Unitech and Sobha Developers rose over 6% while Prestige Estate gained 5% on Friday. Analysts said the investors bought realty shares after a sudden fall in three sessions. "Realty stocks have just bounced back from Thursday's steep fall following various rumours floating in the market," said Sharan Lillaney, real estate analyst at Angel Broking. "The sector is also upbeat over the hopes of an RBI rate cut, however, this has already been factored in the stock prices," he added.

In December, RBI had indicated that it could look at a rate cut in its third quarter yearly review in January 29, 2013 as rate of inflation slowed. BSE Realty is down 1% between January 1 and now against a 2.56% gain in Sensex during the same period. Though foreign brokerages are bullish on the sector, they have recommended investors to play a "risk straddle" strategy — buy high-quality names or play potential turnaround in laggards where debt reduction is coming through and launch momentum is high.

Goldman Sachs has recommended their clients to buy DLF, Sobha Phoenix Mills and HDIL as it believes a cut in interest rate will benefit developers with larger assets and commercial space leases. Analysts say Sebi rules to compulsory reduce promoter ownership to 75% by June 13, 2013 will help companies to raise capital and deleverage balance sheets.